This is an audio transcript of the FT News Briefing podcast episode: ‘Markets shrug off potential US debt default’

Marc Filippino
Good morning from the Financial Times. Today is Friday, May 12th. And this is your FT News Briefing.

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Elon Musk is stepping down as Twitter CEO and Turkey is gearing up for its most important election in a generation. Plus, we’ll look at how a looming debt default in the US is affecting markets.

Katie Martin
If you cannot trust the US to pay back its debt in a timely fashion, then what can you trust?

Marc Filippino
I’m Marc Filippino and here’s the news you need to start your day.

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Elon Musk says Twitter has a new CEO, but also that he’s not going anywhere. Musk tweeted the announcement yesterday. He didn’t give the new CEO’s name, but said she’ll start in about six weeks. Musk will stay on as the company’s executive chair and chief technology officer. Tesla shareholders have been pressuring Musk to focus more on Tesla. He’s still the CEO of the electric car manufacturer and it probably needs some attention. The company’s share price has dropped around 30 per cent over the past year.

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Turkey’s longtime president, Recep Tayyip Erdoğan, faces his toughest challenge in years. Voters head to the polls on Sunday. They’ll vote on whether to keep him in power or choose a different leader. Turkish voters are frustrated with how the government has handled the economy and the recent earthquake. Here’s the FT’s Turkey correspondent, Adam Samson.

Adam Samson
I would say it’s pretty tense. Both parties, President Recep Tayyip Erdoğan’s Justice and Development Party and Kemal Kılıçdaroğlu’s party are both very, very vigorously fighting. Kılıçdaroğlu’s ahead but it’s definitely by no means a sure thing.

Marc Filippino
Adam, what are the big issues here and what’s at stake with this election, both nationally and internationally?

Adam Samson
So the economy is definitely the number one issue among most people that you talk to. Regardless of who wins, they’re gonna have a tough time. You know, it’s a big emerging market economy. It’s like 900bn a year GDP, that sort of thing. So it matters. Turkey matters a lot politically to the world. It’s in a very strategically important place. So what happens here makes a really, really big difference globally as well.

Marc Filippino
So is the election expected to be peaceful? I mean, what have analysts told you?

Adam Samson
Most people think that they probably will be. There’s always the chance that there can be sporadic violence, sporadic intimidation, that sort of thing. Now, there’s another question about whether it’s fair. And a lot of people say this is a really big source of concern. Erdoğan basically controls large swaths of the media here. So he’s really able to get his message out in a way that the opposition can’t. He’s going in and giving all these giveaways like he just gave a really big raise to public sector workers. He’s given free natural gas for a month to everybody in the country, these sort of things. So it’s certainly not seen as a fair election, but people are expecting a fairly free vote in the sense that people will be able to go to the ballot boxes, they’ll be able to pick their candidate, and that those ballots will then be represented when all the numbers are tabulated.

Marc Filippino
Adam Samson is the FT’s Turkey correspondent. Thanks, Adam.

Adam Samson
Sure. Thanks for having me.

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Marc Filippino
The European Union is worried about how data gets from A to B. Specifically, they’re concerned that the current infrastructure is vulnerable. So the EU plans to install an internet cable under the Black Sea. This would improve connectivity to the country of Georgia and reduce dependence on cables that run through Russia. Officials began talking about the project even before Russia invaded Ukraine last year. But the war has given the project more momentum. Last year there were explosions on the Nord Stream gas pipeline and suspicious damage to fibre optic cables off the coast of Norway. It got officials kind of jittery.

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The deadline for the US government to pay back its debt could come in just a few weeks. And unsurprisingly, Congress is fighting over whether to approve more money to pay its debt by raising the country’s $31tn debt ceiling. To find out how markets are handling the uncertainty, I’m joined by two of my go to editors when it comes to understanding markets, FT markets editor Katie Martin.

Katie Martin
Hey, Marc. How’re you doing?

Marc Filippino
And sitting right next to her is our US markets editor, Jen Hughes. She’s normally in New York, but in London with Katie this week. How are you doing, Jen?

Jennifer Hughes
Hi Marc.

Marc Filippino
All right. So we have been talking about the US debt ceiling debate, this deadline that’s approaching. And potentially if the US does not raise the debt ceiling, it could default on its debt. It could have an enormous effect on Treasury markets. Katie, why is that?

Katie Martin
Well, I like the way that you quite breezily say, you know, the US could default (laughs) its debt . . . 

Marc Filippino
Well, it happens enough. I mean, the debt ceiling conversation happens regularly enough that it kind of just rolls off your back at this point.

Katie Martin
Sure. But I cannot overstate what a disaster (laughs) this would be.

Marc Filippino
It would be bad.

Katie Martin
For the US Treasuries market. But for, kind of everything, you know, if you cannot trust the US to pay back its debt in a timely fashion, then what can you trust? This is the bedrock of how every single asset market on the planet works. So yes, there is a genuine possibility that the US could default. And I really hope that I’m not at work that day because it will. I don’t honestly know what will happen in terms of the market reaction, but I do know it will be ugly.

Marc Filippino
Jen, what do you think?

Jennifer Hughes
Well, I’m gonna sound like Katie when I say everything.

Marc Filippino
Yeah.

Jennifer Hughes
People are trying to look now into the technicalities of what could happen. Money market funds, for example, are trying to buy securities that mature either before the X date, which is the date on which the money stops.

Marc Filippino
Which, by the way, is June 1st.

Jennifer Hughes
That’s what Janet Yellen suggested. It could be as soon as that when she was speaking last week. Now, that really freaked everyone out because we were thinking second half of July or early August and she has said actually we got a lot less time. But obviously, if people are money market funds, they’re looking to buy things that are before that date or after whatever grace period they reckon. The other thing about all this is it’s not just the markets. Financial markets are gonna be massive that will have effects around the world for sure. But it’s also in the US, as I understand it, a lot of is that payments from Social Security, Medicare, the rest, they also stop if the money runs out.

Marc Filippino
So going back to the market for US Treasuries, how are US government bonds responding to these debt ceiling tensions?

Katie Martin
Yes. So we are seeing some funny moves in Treasuries, particularly short dated Treasuries. But one of the more interesting market reactions we’ve seen so far is credit default swaps. Remember them?

Marc Filippino
Oh, yeah!

Katie Martin
(Laughs) But the deal with CDS is that you buy them if you think you’re gonna get a default. And then this gives you a bit of a payout to soften the blow. And so they’re are kind of measure that the markets use of the credit worthiness of all sorts of things, companies, governments and all the rest of it. US CDS prices have been picking up pretty markedly. And that tells you that someone somewhere, probably a decent clutch of people, are placing bets that this default could actually happen. So they’re buying this disaster insurance. Even so, the levels of CDSs that we’re seeing now for the US are not like, stratospheric. This market is not panicking as such. And also, if you look at the US stock market, it’s kind of umph whatever, the market is not currently panicking. You know, we’re not buying kind of tinned food and running to the hills here.

Marc Filippino
Now, could that be because we’ve seen this dance so many times? I mean, it’s kind of almost like a ritual in Washington. Jen, what do you think?

Jennifer Hughes
Yeah, we’ve been here before and it always gets, the iron gets pulled out of the fire at the very last moment. It’s what seem to happen. But also, it’s not just having lots of members of Congress and senators who might not be minded to make compromises. You’ve got weak majorities in both houses. So they haven’t got much wriggle room in their own parties to get to their negotiating points. They’ve got to come up with something, a position and then go talk to the other side. So that’s just going to make it even harder.

Marc Filippino
Jen Hughes is the FT’s US markets editor and Katie Martin is the FT’s markets editor. Thank you both.

Katie Martin
No problem.

Jennifer Hughes
Thank you.

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Marc Filippino
Before we go. Inflation has really struck home in Italy. Pasta prices have been soaring way more than the broader inflation rate. Let’s put it this way. The price of spaghetti, rigatoni, penne and other staples rose 17 per cent in March and another 16 per cent in April. Yesterday, after an unexpected pasta price hike, say that three times fast, consumer groups boiled over in anger. There were accusations of market speculation and calls for price caps. Italy’s industry minister, Adolfo Urso, called an emergency meeting but refused to put a lid on pasta prices — one more pasta pun, I swear — and insisted they’ll cool down on their own.

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You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back next week for the latest business news.

The FT News Briefing is produced by Sonja Hutson, Fiona Symon and me, Marc Filippino. Our editor is Jess Smith. We had help this week from Katie McMurran, David da Silva, Michael Lello and Gavin Kallmann. Our executive producer is Topher Forhecz. Cheryl Brumley is the global head of audio and our theme song is by Metaphor Music.

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